Recent cases about holiday pay have not escaped attention and the underlying issue is based on the principle that holiday pay should be paid at the employee’s “normal” rate of pay.
Recent tribunal rulings confirm that “normal remuneration” must be paid during periods of holiday so that employees are not deterred from taking their annual leave.
Where overtime is guaranteed it has been generally accepted such overtime should be included when calculating holiday pay.
Non-guaranteed overtime is where employees generally are required to do it, they are not contractually obliged to work it but are expected to do it (hence not voluntary). The tribunal has now held that regular non-guaranteed overtime should be included in holiday pay calculations as it was pay “normally received”. If the overtime is not regular, the law remains a little vague!
With voluntary overtime the same legal argument applies, i.e. that workers are likely to be deterred from taking holiday if voluntary overtime is worked regularly and is not taken into account. Therefore it seems that it should be included.
A further case is due to be heard by the Northern Ireland Court of Appeal in June, concerning whether purely voluntary overtime should be treated in the calculation of holiday pay.
Therefore, it looks like this cannot be ignored for much longer and your staff will be taking a close look at whether you comply with the law – and challenging you. So you need to start thinking about what you should do.
There are three options:
1. Do nothing – the tribunal is still unclear about over what period overtime should be calculated to determine a weekly amount to reflect in holiday pay, i.e. 52 weeks or 13 weeks, or somewhere in between. However, there is always a risk of a claim from your staff since this will not go away.
2. Take a cautious approach, emphasise that overtime is purely voluntary and wait and see – we suspect this will not mean you can evade the extent of the ruling depending on how you manage, or rely, on overtime. However, many companies are doing just this – mainly through ignorance. The problem will be proving overtime is purely voluntary.
3. Introduce the change and pay overtime allowance into your holiday pay.
Start doing your sums and get prepared!
Oh, and here’s a tip – you are only required to pay the overtime allowance for the first 20 days of holiday.